Tax Evasion

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Posted: November 17, 2016

Tax has been and still is a major contributor to the government’s expenditure money. Many states depend on this as their primary source of income for financing their budgets. As such, many states put measures to ensure that business entities, as well as individuals alongside companies, pay taxes respectively. Tax has therefore been seen to be of the great essence for running government projects as well as other undertakings. To efficiently collect taxes, there are different types of taxes set forward so as to ensure that everyone is taxed appropriately. It would also be important to note that the charges set forward are usually mandatory for individuals to pay and tax avoidance would be seen to be punishable by law. The following are some of the types of taxes that are available;

1. Taxes on income

2. Taxes on property

3. Taxes on goods and services

The above stated may be said to be the main sub-branches of taxes while among them there are other smaller branches which individuals are liable to.

As noted earlier, tax evasion or avoidance is punishable by law in almost all countries. Tax evasion had been on the rise for many years, and this necessitated the emergence of fiscal transparency which has been a key area of focus for governments as well as tax authorities all around the world. The main reason to why scrutiny on taxes has increased is because many governments have been faced with massive fiscal deficits which are as a result of the growing demand for public infrastructure and services. Some of the agencies that have been on the forefront in scrutinizing taxes include the government, the media, tax authorities, and the general public. Australia has been considered to be one of the global leaders when it comes to tax transparency. The Australian government has put some measures in place which tend to deal with increased regulatory transparency and public disclosure of tax information between the tax authorities and the taxpayers. The Commissioner of Taxation is the one who has the obligation of publishing selected income tax information for some large taxpayers, and also information that is in relations to the Petroleum Resources Rent Tax.

Several big companies have been seen to avoid paying their annual taxes. According to statistics obtained with regards to tax evaders in the fiscal 2013-2014, 579 local, as well as foreign-based companies avoided paying taxes. Several reasons have been stated on why they did not pay their taxes as required (McDonald, 2014). One of the reasons is that some of the companies had offsets against profits which reduced their tax to zero. Another reason is that the companies made a loss and the Tax Office reported this as nil. Many businesses in the financial year 2013-2014 avoided taxes since they were still in their recovery from the global financial crisis which saw them accrue massive losses that were carried forward as well as bad debts, and the restructuring activities that were underway. The following are some of the notable companies that did not pay taxes;

• Transfield which is a multi-billion company paid zero taxes even though it had $2.8 billion turnovers and $16 million taxable income.

• Adani’s Abbot Point Terminal in Queensland had a turnover of $268 million but did not pay tax.

• Steinhoff Holdings had a total of $431 million in income, having $150 million taxable income and did not pay tax.

Tax evasion does not only mean that a company has not paid the taxes at all, but it also points out that the company may have paid some of the tax and not the full amount that it is supposed to pay. Many of the businesses in Australia are seen to pay tax, but they do not pay it relative to their income. One of the examples of such a case is the case of Macquarie which had a turnover of $8.1 billion. Even though its turnover was this high, it only paid an amount of $127.9 million in tax.

Companies also tend to make deductions to enable them to pay less tax. According to law, some deductions have been deemed to be perfectly legal. These include first prior year losses. By this, we mean that a company has been given the privilege of deducting the losses that it incurred in the previous financial year from the taxable income it got from the current financial year. Secondly, the company is also given the ability to deduct the amount of money that it spends on research and development. Thirdly, it is also allowed to make deductions that are in relations to franking credits (Richard Fletcher, 2013). This just means that the company has been given the ability to offset its tax liability against the dividends it pays to those that it considers its shareholders. The above named three cases have made it difficult to take taxation as a percentage of total income instead of taxable income. Even though tax deductions as the above stated may be legal, they also may not be good policy. Companies that employ the above tax deductions may be said to be acting legally. But there are other forms of tax deductions that other businesses put in place which may be seen to be against the law. The following may be considered to be the dark arts of fraud that many companies bring into play;

• Profit shifting- many companies are seen to act against the law by sending their profits offshore. This is considered to be illegal because it results to tax deductions that are not stipulated by statute thereby leading to fraud.

• Debt dumping-companies that are multinational i.e. operate overseas tend to use this as their main way of tax reduction. They tend to bring shares from their foreign subsidiaries into Australia to reduce the amount of taxable income.

One of the companies that have been seen to have acted unlawfully when it comes to paying their tax is Apple. The company is said to have operated against tax laws by shifting its profits overseas to Ireland. Doing so is unlawful, and therefore the company may be seen to be in the wrong since it involved itself in tax avoidance. The media may be seen to play a major role towards bringing such things into the limelight, and therefore they play a great role in ensuring that such things are not left to go unnoticed. Businesses should, therefore, ensure that they do not involve themselves in tax evasion. They ought to, therefore ensure that they comply with the tax rules that are set forward.